Management Report
8. Financial Position of the Bayer Group
| Bayer Group Summary Statements of Cash Flows | [Table 15] |
|---|
| | 2nd
Quarter
2009 | 2nd
Quarter
2010 | 1st
Half
2009 | 1st
Half
2010 |
| | € million | € million | € million | € million |
| Gross cash flow* | 1,248 | 1,286 | 2,457 | 2,557 |
| Changes in working capital/other non-cash items | 151 | 259 | (365) | (280) |
Net cash provided by (used in) operating activities
(net cash flow) | 1,399 | 1,545 | 2,092 | 2,277 |
| Net cash provided by (used in) investing activities | (349) | (427) | (479) | (740) |
| Net cash provided by (used in) financing activities | (3,579) | (1,613) | (1,875) | (1,728) |
| Change in cash and cash equivalents due to business activities | (2,529) | (495) | (262) | (191) |
| Cash and cash equivalents at beginning of period | 4,365 | 3,041 | 2,094 | 2,725 |
| Change due to exchange rate movements and to changes in scope of consolidation | (2) | 5 | 2 | 17 |
| Cash and cash equivalents at end of period | 1,834 | 2,551 | 1,834 | 2,551 |
2009 figures restated * Gross cash flow = income after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depreciation, amortization and write-downs, minus write-backs, plus/minus changes in pension provisions, minus gains/plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefit payments during the year. |
Operating cash flow
Gross cash flow in the second quarter of 2010 rose by 3.0% from the previous year to €1,286 million (Q2 2009: €1,248 million). Gross cash flow of HealthCare showed a slight decline. At CropScience, the drop in the operating result caused gross cash flow to recede significantly. MaterialScience saw a marked improvement in gross cash flow due to the gratifying expansion of business. Net cash flow of the Group rose by 10.4% to €1,545 million (Q2 2009: €1,399 million), due in part to our measures to optimize working capital management. Net cash flow reflected income tax payments of €319 million (Q2 2009: €114 million).
Gross cash flow in the first half of 2010 increased by 4.1% to €2,557 million (H1 2009: €2,457 million), due largely to the higher operating result. Net cash flow rose to €2,277 million (H1 2009: €2,092 million). This figure contains income tax payments of €493 million (H1 2009: €133 million).
Investing cash flow
Net cash outflow for investing activities in the second quarter of 2010 totaled €427 million (Q2 2009: €349 million). Cash outflows for property, plant, equipment and intangible assets were 1.4% lower at €365 million (Q2 2009: €370 million). Of this figure, HealthCare accounted for €129 million (Q2 2009: €117 million), CropScience for €69 million (Q2 2009: €68 million) and MaterialScience for €141 million (Q2 2009: €138 million). Included here are disbursements related to the expansion of our polymers production facilities in Shanghai, China, and for a strategic alliance in the area of cancer research. Outflows for acquisitions totaled €1 million (Q2 2009: €2 million). Among the cash inflow items in the second quarter of 2010 were €24 million (Q2 2009: €51 million) in inflows from divestitures and €24 million (Q2 2009: outflow €3 million) from current financial assets.
Net cash outflow for investing activities in the first six months of 2010 totaled €740 million (H1 2009: €479 million). Included here are cash outflows for noncurrent financial assets of €243 million (H1 2009: cash inflows of €84 million). Cash outflows for additions to property, plant, equipment and intangible assets declined 9.8% to €595 million (H1 2009: €660 million). Of this figure, HealthCare accounted for €198 million (H1 2009: €179 million), CropScience for €107 million (H1 2009: €144 million) and MaterialScience for €247 million (H1 2009: €244 million). The cash outflows for acquisitions amounted to €18 million and comprised mainly the purchase by MaterialScience of Artificial Muscle, Inc., United States, in March 2010. Among the cash inflow items in the first half of 2010 were €41 million (H1 2009: €51 million) in inflows from divestitures and €33 million (H1 2009: €32 million) in interest and dividends received.
Financing cash flow
Net cash outflow for financing activities in the second quarter of 2010 amounted to €1,613 million (Q2 2009: €3,579 million). This total contained net loan repayments of €250 million (Q2 2009: €2,151 million). Interest payments were 34.9% lower at €423 million (Q2 2009: €650 million). This was partly due to the reduction of financial debt and lower interest rates. There was a €1,158 million outflow for “dividend payments and withholding tax on dividends” (Q2 2009: €969 million).
Net cash outflow for financing activities in the first half of 2010 amounted to €1,728 million (H1 2009: €1,875 million). This total contained net loan repayments of €280 million (H1 2009: €326 million). Interest payments decreased to €519 million (H1 2009: €819 million). There was a €1,158 million outflow for “dividend payments and withholding tax on dividends” (H1 2009: €973 million). The prior-year figure contains the cash outflows for the subsequent purchase of ownership interests in subsidiaries totaling €40 million, comprising mainly disbursements made in connection with the purchase of the 49% interest in Berlimed, Spain and the remaining 10% interest in Bayer Polymers Shanghai, China.
Liquid assets and net financial debt
| Net Financial Debt | [Table 16] |
|---|
| | Dec. 31, 2009 | March 31, 2010 | June 30, 2010 |
| | € million | € million | € million |
| Bonds and notes | 8,301 | 8,405 | 8,308 |
| of which hybrid bond | 1,267 | 1,297 | 1,322 |
| Liabilities to banks | 3,251 | 3,322 | 3,653 |
| Liabilities under finance leases | 550 | 572 | 612 |
| Liabilities from derivatives | 578 | 789 | 1,016 |
| Other financial liabilities | 178 | 188 | 177 |
| Positive fair values of hedges of recorded transactions | (426) | (548) | (516) |
| Financial debt | 12,432 | 12,728 | 13,250 |
| Cash and cash equivalents | (2,725) | (3,041) | (2,551) |
| Current financial assets | (16) | (25) | (2) |
| Net financial debt | 9,691 | 9,662 | 10,697 |
Net financial debt of the Bayer Group increased to €10.7 billion as of June 30, 2010. This increase in the second quarter was mainly due to the dividend payment of €1.2 billion and to negative currency effects of €0.6 billion. Debt was also increased by annual payments of variable compensation to our employees and by the expectedly high disbursements resulting from the fact that the interest payment dates for our bonds occur mainly in the second quarter. As of June 30, 2010 the Group had cash and cash equivalents of €2.6 billion. Financial liabilities amounted to €13.3 billion, including the €1.3 billion subordinated hybrid bond issued in July 2005. Net financial debt should be viewed against the fact that Moody’s and Standard & Poor’s treat 75% and 50%, respectively, of the hybrid bond as equity. Unlike conventional borrowings, the hybrid bond thus only has a limited effect on the Group’s rating-specific indicators. Our noncurrent financial liabilities rose from €10.7 billion to €11.0 billion during the second quarter of 2010. At the same time, current financial liabilities increased from €2.7 billion to €2.8 billion.
Standard & Poor’s gives Bayer a long-term issuer rating of A- with negative outlook, while Moody’s gives the company a rating of A3 with stable outlook. The short-term ratings are A-2 (Standard & Poor’s) and P-2 (Moody’s). These investment-grade ratings document good creditworthiness.
Net pension liability
| Net Pension Liability | [Table 17] |
|---|
| | Dec. 31, 2009 | March 31, 2010 | June 30, 2010 |
| | € million | € million | € million |
| Provisions for pensions and other post-employment benefits | 6,517 | 7,051 | 7,839 |
| Benefit plan assets in excess of obligation | (100) | (105) | (112) |
| Net pension liability | 6,417 | 6,946 | 7,727 |
The net pension liability increased from €6.9 billion to €7.7 billion in the second quarter of 2010, due especially to lower long-term capital market interest rates. Provisions for pensions and other post-employment benefits rose from €7.1 billion to €7.8 billion. The excess of benefit plan assets over the obligation – reflected in other receivables in the statement of financial position – came to €0.1 billion (March 31, 2010: €0.1 billion).